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Beyond the balance sheet

Why you need to value your UK property now for capital gains tax if you live overseas

Christina Nawrocki 08/5/2015 3 minute read

Christina Nawrocki FCCA explains the implications of the capital gains tax for UK property owners who live overseas.

You may recall a post we wrote on this blog last year about second homes – the capital gains tax implications of being a part-time occupier? Following this, new rules have been implemented which mean non UK residents have to pay capital gains tax (CGT) on the disposal of residential property owned in the UK.

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This regulation came into effect on any exchange of contracts as of 5 April 2015. It comes off the back of the previous changes made by the government which saw a CGT charge applied on the disposal of high value residential properties that were owned by either companies or partnerships – known as the Annual Tax on Enveloped Dwellings (ATED).  

What you need to do

All gains made after 5 April 2015 will be subject to CGT. Therefore the first step as a home owner living abroad is to find out the approximate value of your UK property. This is so that you can calculate any potential gains that will be made when your property is sold in the future.

You should also make a note of the condition of the dwelling and take pictures as evidence of this. Be sure to note the price of similar properties being sold locally and consider using websites for this such as Zoopla’s property valuation tool to assess the potential current sale price. Obtaining a professional valuation at this stage is not necessary but could be useful.

Why you should take this action

The reason for doing the above work is so that it will be easier to prove to HMRC the exact amount of your gains that are liable for CGT when you sell your property at some stage in the future. It is also important to note that if the valuation of a property is actually lower now than when purchased (unlikely in today’s property market but still possible), then the original cost may be used instead.

Claiming PRR

The rules for claiming private residence relief (PRR) will also change for non-residents. To help you understand this, PRR is the principle whereby CGT is normally not payable on the gain you make on your only or main home. Within this there are also some deemed periods of occupation rules that allow for exemption from CGT in instances where the owner was not living in the property at the time. Consequently UK based second home owners can make use of this tax relief (within strict regulation) on their second property.

For non residents to make use of PRR according to the new rules, they will have to satisfy a revised day count test. This means, homeowners or their spouses, or civil partner, need to stay overnight in the second property in question for at least 90 separate days in the tax year. If the usual PRR rules were met at any time prior to 6 April 2015 then the last 18 months will be considered exempt.

What you must do when you sell your property

Any sale of your property must be reported to HMRC within 30 days of completion whether or not you completed UK tax returns. Be sure to inform your professional advisors if you have plans to sell up any time soon.

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The content of this post is up to date and relevant as at 08/05/2015.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

 

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